On December 13, I argued that “it could make sense to trim the position” in Apple stock (AAPL) - Get Apple Inc. Report. But to be honest, although the share price has dipped 6% since then (roughly $170 billion in market cap lost), I could not have guessed the extent or the timing of this recent selloff.
Today I explain why AAPL, at less than $170 per share as I write this paragraph, will eventually prove to be a buying opportunity, and what investors might want to do about it today.
(Read more from the Apple Maven: Apple Stock: Careful With Big Tech in 2022, Says This Expert)
AAPL bull, but with a twist
For as long as I have covered Apple, I have been bullish on the company and the stock. The company seems to be very well run by CEO Tim Cook and his team, while demand for Apple products and services and consumers’ appreciation for the brand seem to be rising each year around the globe.
However, depending on recent price behavior, I recognize that being overweight AAPL may not always make sense. This is what I saw in late August 2020, before AAPL dropped sharply in the following weeks, and again only a month ago.
In the current case, mild bearishness does not seem to have much to do with Apple itself. In fact, evidence continues to surface that the holiday season has been good for consumer product companies, and that supply chain challenges have been addressed well in Cupertino.
The problem this time is that interest rates have started to climb in anticipation of further inflationary pressures and tighter monetary policy in 2022. This dynamic bodes ill for tech and growth stocks across the board. AAPL has been caught in the crosshairs.
Valuations more attractive
The table below shows how, in the past 30 days, analysts have not scaled down on their expectations for earnings generation in fiscal 2022 and 2023. If anything, EPS estimates have climbed slightly while the stock price has peeled back from all-time highs.
Higher earnings projections coupled with lower share price mean lower valuation multiples. While Apple stock traded at a fairly rich fiscal 2023 P/E of 29 times about a month ago, this ratio has dipped to a more palatable 27 times now.
Should investors buy this dip in AAPL?
Make no mistake: AAPL is still not a bargain. But if one assumes that the stock will eventually recover and climb to new highs, as it has consistently done for decades, buying this modest dip should offer bargain-hunting investors an extra few percentage points in returns.
That said, there is no guarantee that Apple (and the rest of the market, for that matter) has found a bottom. In the short term, further declines in share price and increased volatility are certainly not out of question.
Therefore, those who choose to buy AAPL stock on weakness should be at least prepared to face disappointments in the short term, while staying diligently focused on longer-term results.
We have recently asked Twitter users for their opinion on how well AAPL would perform in 2022. They seem to be pretty optimistic about what lies ahead. Chime in below and let us know your thoughts too!
(Read more from the Apple Maven: Can Apple Stock Reclaim $3 Trillion And Thrive In 2022?)
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)